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Recession Report
Putting what is happening into context
In this first edition of the Recession Report we start by trying to give an idea of the scale of the recession we are entering. Two errors are particularly common in the media and among politicians in this regard. One is the Chicken Little/Daily Mail response - we are already in the middle of the worst recession of all time, the sky is about to fall in. In fact, the unemployment rate is still quite low by the standard of the early 90s recession and the redundancy rate is still no higher than it was five years ago:
The other is the line the Department for Work and Pensions was taking until recently - what's the fuss, there's really nothing to see here. One difficulty we have at the moment is that employment is a 'lagging indicator' of what is happening to the economy - businesses usually lay people off after demand has fallen, and don't start hiring again until after the recovery has begun. In addition to this, many of the labour market data are only available after a delay, and some are only published quarterly, not monthly. If we relied on the data for total employment the latest figure, for June, is the first to show any decline, and is still a third of a million higher than the figure for June 2007.
But if employment figures change rapidly - and the way the redundancy rate, though low has been accelerating since April is one sign that that is what is happening - we could be in the middle of the recession before the employment figures reflect this.
Why does the TUC think that the picture is going to get a lot worse before it gets any better? One reason is quite straightforward: the figures for the unemployment rate have been quite consistently worrying, rising for most of this year from 5.3 per cent to 6.0 per cent. Another is the figures for vacancies, which tend to be an early sign of how employers are thinking. Like the redundancy rate, the vacancy level has been headed in the wrong direction since April, with a fall of 13 per cent:
Another early indiciator can be the number of temporary workers, as employers can see temporary posts as less integral to their organisations than permanent positions and some temporary staff can be easier to sack. The level of temporary employment has been falling all year, from 1.464 million in Nov-Jan to 1.378 million in Jun-Aug.
Another clear indication was to be found in the most recent survey of HR professionals for the Chartered Institute of Personnel and Development's Labour Market Outlook, which found that the proportion expecting to increase their employment levels was only two percentage points higher than the proportion expecting to make reductions, the lowest figure since the survey began in 2004.
This year economic forecasters have repeatedly been forced to revise upwards their predictions of (claimant count) unemployment levels in 2008 and 2009, as revealed by the Treasury's averages for the predicitons of independent forecasters in successive editions of the Forecasts for the UK economy: a comparison of independent forecasts:
Average independent forecasts for claimant count unemployment in 2008 and 2009
|
Month |
2008 forecast (millions) |
2009 forecast (millions) |
|
Jan |
0.83 |
0.96 |
|
Feb |
0.83 |
0.91 |
|
Mar |
0.92 |
0.99 |
|
Apr |
0.91 |
0.99 |
|
May |
0.87 |
0.96 |
|
Jun |
0.88 |
0.99 |
|
Jul |
0.90 |
1.00 |
|
Aug |
0.92 |
1.10 |
|
Sept |
0.92 |
1.13 |
|
Oct |
0.97 |
1.24 |
The object of presenting this table is not to sneer at the forecasters, but to indicate how the scale of the recession and the speed at which it has progressed has caught economists by surprise. Even if matters get no worse, these forecasts and the figures for vacancies suggest that unemployment is likely to pass the 2.5 million mark next year. The TUC view is that without a bold policy response over the next few weeks the figure will exceed 2.5 million nationally by some way.
The sky has not fallen in; unemployment is still quite low by the standards of the recession of the early 90s, let alone that of the early 80s. But the recession is going to bite a lot deeper over the coming months, and we may well see the unemployment rate rising from its current level of 5.8 percent to 7.5 or 8 per cent. The TUC will use this monthly report to look at how the recession proceeds - and how we emerge from it.
Recession and Vulnerable Employment
In the second part of the monthly report, we will consider how particular areas of policy are affected by recession. This month we look at vulnerable employment.
During a recession many workers will feel that their jobs are insecure. But not all of them are in 'vulnerable employment', which the TUC defines as: 'precarious work that places people at risk of continuing poverty and injustice resulting from an imbalance of power in the employer-work relationship'.[1] These are the worst low-paid jobs, where workers face ongoing job insecurity and a high risk of poor and illegal treatment.
This briefing considers how vulnerable employment may change during recession, and what Government could do to improve conditions for these workers.
What rights do workers in vulnerable employment have?
All vulnerable employment is low-paid. However, in the UK directly employed staff (permanent or fixed-term) and temporary 'workers' have separate employment rights entitlements, and this is no different for those in vulnerable work.
Many vulnerable jobs are held by directly employed employees (who can be permanently employed or on fixed-term contracts) in low-paid sectors - for example cleaning, care, catering and retail. This group have the same rights at work as other 'employees'. However, it is important to note that Britain has some of the weakest employment protection laws in Europe: the OECD's employment protection index rates UK workers as the second least protected in the developed world.[2] This means that, for example, employees are only entitled to protection from unfair dismissal after one year and have to wait two years to be eligible for statutory redundancy pay - and even then payments are also low relative to other countries. UK employees can also find themselves on variable hours contracts, where they have no entitlement to guaranteed hours of work.
Some people in vulnerable employment are legally classified as 'workers', with fewer rights and more insecurity than 'employees'. Agency workers, casual workers and seasonal workers usually fall into this group. For example, they are not entitled to a written statement of employment particulars, statutory minimum notice periods and time off for trade union duties. The same group are also prevented from accessing many family-friendly rights. Parents in this position are therefore particularly affected, denied maternity and paternity leave and the right to request flexible working. Mothers also miss out time off for ante-natal care. Of particular concern during a recession will be the lack of entitlement that 'workers' have to any statutory redundancy pay or protection from unfair dismissal.
In some cases, workers in vulnerable employment are falsely classified as 'self-employed'. This is a particular problem for homeworkers and workers in the construction and distribution sectors, who can find that employers use legal loopholes to deny them any protection under employment law.
Many migrant workers face immigration restrictions which make their employment more vulnerable, for example making them liable to lose work permits or welfare benefits should they leave an exploitative employer. Migrants who are working irregularly, and all workers engaged in informal work, may face some of the greatest risks, as they have no legal protection.
How many workers are there in vulnerable employment?
The TUC make a conservative estimate that there are two million workers in vulnerable employment nationally.[3] As recession bites, we believe that this number may increase, as although the number of temporary jobs will decline, more people will feel that they have no choice but to enter low-paid and exploitative work.
We know that at the start of recession the number of temporary jobs will fall first (as discussed in the previous section). Employees on fixed-term contracts will be better protected during this recession than they have been previously, as they now have the same rights as permanent directly employed staff. It is therefore illegal for employers to provide fixed-term workers with less favourable redundancy rights than permanent staff, or to select employees for redundancy solely because they are on a fixed-term contract. It is also unlawful to include waiver clauses opting out of redundancy pay in employees' contracts. However, temporary staff with 'worker' status are easier for employers to dismiss, as they have no redundancy or dismissal rights, and can simply not be asked back.
Recent labour market statistics bear this theory out, showing that overall the number of temporary jobs[4] in the economy has fallen sharply, with a 7.5 per cent annual reduction.[5] Temporary recruitment agencies are also feeling the full effects of the credit crunch, with a recent survey showing a 67 per cent increase in administrations[6] among this group between the second and third quarters of this year.
But while temporary jobs (both fixed-term employee posts and 'worker' positions) will decrease overall this does not mean that vulnerable employment will necessarily decline. This is because it is also likely that some employers, particularly in low-paid sectors, will cut staff terms and conditions and move staff onto 'worker' contracts as a means to make perceived savings. Other employers may be more likely to falsely categorise workers as self-employed as a means to avoid their legal obligations. Employers of low-paid directly employed staff may also use the threat of unemployment as an excuse to introduce exploitative treatment. As is discussed below, the TUC has received anecdotal reports that this has started to happen in the cleaning and construction sectors. Given the UK's low welfare benefit rates, workers moving onto Jobseekers Allowance may also feel they have no choice but to take informal jobs to supplement their income. Overall, we therefore believe that during recession the numbers of workers in vulnerable employment will begin to increase.
What are the risks that workers in vulnerable employment face?
The TUC Commission on Vulnerable Employment received many reports of mistreatment at work. These included workers:
- being paid less than the minimum wage either on an illegally low hourly rate or by not being paid for all of the hours that they had worked;
- having to pay for their own health and safety equipment;
- being denied rest breaks, working, for example, twelve hour shifts on production lines without any time off;
- not being provided with paid time off for ante-natal care and being sacked for being pregnant;
- having no job security from one day to another, while being expected to be available for work at an hour's notice.
During a slowdown the risk of vulnerable employment is greater - people may be more prepared to put up with bad treatment as they are scared of losing their jobs, and employers may use the insecure economic climate to justify poor treatment. At the moment we only have anecdotal evidence of how this may be affecting workers. We have received reports including:
- directly employed construction workers bring moved to self-employed contracts, as a way to enable employers to avoid their legal obligations;
- cleaners being told that they have to undertake more jobs per day for the same wages, as a result of redundancies;
- pregnant women being made redundant as a means to enable employers to avoid the costs of maternity pay and cover;
- migrant workers being told that they no longer qualify for employment rights at work.
The TUC believes that migrant workers in vulnerable employment will face additional risks of mistreatment: we have already received anecdotal evidence that in areas with a high risk of unemployment migrant workers are beginning to experience heightened levels of racist abuse at work.
As unemployment rises, people who previously had better paid jobs may find themselves more likely to enter vulnerable employment. In some cases this will mean that those who previously had 'employee' contracts will find that they only have 'worker' rights. While the TUC and its affiliated unions have won improved treatment for agency workers, these protections are not yet in place, and as discussed above, even when agency workers do have the right to equal treatment with directly employed staff, all 'workers' will still face poorer working conditions than 'employees'. There may therefore be surprise at the poor employment conditions that still exist in the lowest-paid jobs in the UK labour market. In particular parents in this position, previously used to better family-friendly rights, may find that the change is difficult.
Who is at greatest risk?
We know that women, workers from minority-ethnic groups and young workers are over-represented among those in low-paid and temporary jobs. For example 25.3 per cent of workers from non-White groups are low-paid, compared to 22.6 per cent of White workers, [7] and jobs held by women are much more likely than those held by men to pay the minimum wage (or below). [8] The same figures show that young people are also more likely to be paid the minimum wage than older workers. [9] This means that low-paid workers in these groups may be the first to face redundancies, or to see their terms and conditions of employment getting worse. Surveys of workers who have experienced problems at work consistently show that workers from non-White backgrounds and younger workers are disproportionately likely to experience difficulties.[10]
What can Government do to reduce the risks?
The TUC's submission to the Pre-Budget Report has set out a comprehensive set of proposals to support low-paid workers, and stimulate the economy.[11] These include highlighting the need to increase levels of statutory redundancy pay. We further believe that the Government needs to take measures specifically to support those in vulnerable employment, which are set out below.
There is now more need than ever to ensure that enforcing employment rights is at the top of the Government's agenda. As the risks of mistreatment increase, Government has to make clear to rogue employers that the recession cannot be used as an excuse for denying staff their legal rights.
The Government has made some important changes that will improve enforcement systems, including the establishment of the Fair Employment Enforcement Board[12] and a commitment to set up a single hotline for workers to report employment rights problems to. However, state enforcement agencies remain grossly under-resourced. For example, the National Minimum Wage Compliance Unit still only has around 105 inspectors nationally - and the Employment Agency Standards Inspectorate only has 26. The TUC believes that Government needs to commit to significant increases in numbers in the immediate future.
In countries with stronger rights there will be less mistreatment, and less unemployment. Contrary to what some business leaders say the UK's limited employment rights legislation has a negligible impact on unemployment rates - and when times are tough it makes it much easier for workers to be sacked.[13] The TUC believes that now is the right time for Government to show workers that it is on the same side as working people and ensure that all workers have the same employment rights at work.
It is important to highlight that while there can be a correlation between very strict employment protection and reduced job creation, improved rights for temporary 'workers' would not impact on the number of jobs in the labour market. Universal rights for all workers could reduce the incentive for employers to replace permanent posts with temporary staff, but do nothing to cut the demand for labour. Improving rights for 'workers' would still provide employers with opportunities to engage staff on flexible hours or temporary contracts, meaning that as growth returns the UK would remain in a strong position to enable employment rates to increase.
It is within the Government's means to ensure that new jobs are good jobs. As commitments to bring forward public spending to create jobs are fulfilled it will be important that the new positions are good opportunities with prospects. The TUC therefore believe that Government should commit to using public sector procurement to create jobs that pay a decent wage and provide progression and training opportunities for workers.
Read TUC policy officers' comments on this report and the ongoing economic situation at the TUC public policy blog: www.touchstoneblog.org.uk
[1] TUC (2008) Hard Work, Hidden Lives: The Full Report of the Commission on Vulnerable Employment London: TUC, p12.
[2] OECD (2004) OECD Employment Outlook 2004 Employment Protection Legislation and Labour Market Performance Paris: OECD.
[3] For further information on this calculation please see the TUC (ibid) p24.
[4] The Labour Force Survey categorises temporary jobs as seasonal, casual and agency work, employee jobs with a fixed-term contract or jobs that are not permanent in some other way. The monthly Labour Market Statistics releases do not disaggregate vacancies by type of temporary employment.
[5] National Statistics (2008) Labour Market Statistics, October 2008 London: National Statistics.
[6] Deloitte, Press Release, October 23rd 2008, Administrations increase: recruitment and business services sector, 266%http://www.deloitte.com/dtt/press_release/0,1014,sid%253D2988%2526cid%253D230851,00.html.
[7] Analysis undertaken by the TUC using figures from the Labour Force Survey Autumn 2007.
[8] National Statistics (2007) Low Pay Estimates, Spring 2007 London: National Statistics http://www.statistics.gov.uk/pdfdir/lpay1107.pdf.
[9] Ibid.
[10] For example see Mitchell D (2008) Citizens Advice Client Research - Final Report London: BERR.
[11] For example see TUC, Press Release, November 19th 2008 Stimulate the economy with tax cuts, says TUC.
[12] The Vulnerable Workers Enforcement Forum was established to examine abuses of employment law. The Fair Employment Enforcement Board includes: Employment Relations Minister Pat McFadden (chairman); HM Revenue and Customs; Employment Agency Standards Inspectorate; Health and Safety Executive; Gangmasters Licensing Authority; Department for Environment, Food and Rural Affairs; Confederation of British Industry; Trades Union Congress; Federation of Small Businesses and Citizens Advice.
[13] OECD (2004) OECD Employment Outlook 2004 Employment Protection Legislation and Labour Market Performance Paris: OECD.
Briefing document (3,000 words) issued 18 Nov 2008
